2. Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows Annual Income $15,500 20,600 15,700 Life of Investment $240,000 270,000 280,000 Project Pro 22A years years 23A 24A Annual income is constant over the life of the project. Each project is expected to have zero method of depreciation salvage value at the end of the project. Iggy Company uses the straight-line Instructions (a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals. (HINT: remember, internal rate of return is based on the expected annual CASH inflow, not on the annual income.) (b) If Iggy Company's minimum required rate of return is 10%, which projects are acceptable? 3. Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekend. Lon, an entrepeneur, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information: a. Five used vans would cost a total of S75,000 to purchase and would have a 3-year useful life with no salvage value. Lon plans to use straight-line depreciation. Loin would like to recover the intitial cash outlay within 2 years Ten drivers would have to be employed at a total payroll cost of $48,000 annually Other annual out-of-pocket costs associated with running the commuter service would include Gasoline $16,000, Maintenance S3,300, Repairs $4,000, Insurance S4,200, and Advertising S2,500 b. c. d. Lon has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is 15%. Use this rate for cost of capital, Lon would like to earn at least an 18% rate of return Lon expects each van to make ten round trips WEEKLY and carry an average of six students each round trip. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket e. Instructions (a) Compute the payback period and determine if the project is acceptable (b) Compute the accounting rate of return and determine if the project is acceptable (c) Compute the net present value and determine if the project is acceptable (d) Compute the internal rate of return and determine if the project is acceptable (e) Repeat (a) through (d) assuming the useful life of the vans is 5 years